13Oct11

Raj Rajaratnam jailed for 11 years for insider trading

Fallen hedge fund tycoon Raj Rajaratnam has been sentenced to a record 11 years in prison after his
conviction in the biggest Wall Street insider trading case in decades.

Prosecutors had pushed for 25-year sentence after convicting Rajaratnam, 54, in the biggest insider
trading investigation ever conducted by US authorities.

Legal experts said that while prosecutors may have been disappointed with the decision, the sentence
was still the highest ever given for insider dealing.

"His crimes and the scope of his crimes reflect a virus in our business culture that needs to be
eradicated," US district judge Richard Holwell told the Manhattan court. The judge also ordered
Rajaratnam to pay a $10m fine.

"He is arguably the most egregious insider trader to face sentencing in a courthouse in the US,"
assistant US attorney Reed Brodsky said. He called Rajaratnam the "modern face of insider trading."

Rajaratnam, former boss of the multi-billion dollar Galleon Group hedge fund, pleaded not guilty,
and told court officials he was still not "clear" about why he was convicted -- a move experts say
was likely to add to his jail term. Admissions of guilt can reduce sentences.

Rajaratnam's lawyers had asked for a shorter punishment, arguing that he is in poor health and does
not deserve the same length of sentence that a violent offender would receive.

In court, defence lawyer Terence Lynam said Rajaratnam is suffering from a "progressive,
degenerative disease" and had been hospitalised several times this year. "Any lengthy term of
imprisonment will surely shorten his life," Lynam said.

Prosecutors found that Rajaratnam had used a network of insiders to gain illegal tips on some of the
world's biggest companies including Goldman Sachs, Google, Hilton and Intel. The scandal also
dragged in Rajat Gupta, a former Goldman Sachs director and ex-boss of the McKinsey management
consultant group, who is now facing a criminal investigation over tips he allegedly gave to
Rajaratnam.

The secretly tapped conversations that the Galleon founder held with Gupta and other associates
were instrumental in securing his conviction. Such extensive wire tapping in a white-collar criminal
case is unusual. The practice is more usually associated with mafia investigations and Rajaratnam's
lawyer fought unsuccessfully to have the tapes banned from court.

The recordings proved extremely damaging for Rajaratnam and his associates. Out of 26 charged in
Galleon-related cases, Rajaratnam and three others were convicted at trial; 21 pleaded guilty and one
defendant is at large.

Rajaratnam's sentencing follows a 10-year sentence for Zvi Goffer, a former trader at Galleon. The
average sentence of the 13 other defendants connected to the Galleon case has been about three
years.

Eli Richardson, a partner in Bass, Berry & Sims, said Rajaratnam should "consider himself lucky."
He said the sentencing guidelines would have justified a significantly loner sentence and that the
prosecutors must have been disappointed.

"The judge gets the best of both worlds here. He has handed out the stiffest sentence in an insider
dealing case but at the same time displayed mercy," said Richardson.

The crackdown on insider dealing comes as US and UK authorities are trying to cooperate on
cross-border regulation and enforcement.

Mary Schapiro, the chairwoman of the top US financial watchdog the Securities and Exchange
Commission, met Hector Sants, the UK's Financial Services Authority chief executive officer, in
London on Thursday to discuss topics including high-frequency trading and cross-border
enforcement cases.

But legal experts said the Rajaratnam case would be difficult to replicate in the UK. Simon Hart,
partner at law firm Reed Smith, said: "Rajaratnam's conviction was in large part secured through the
use of phone-tap evidence. That is simply not an avenue available to the FSA when investigating and
prosecuting insider dealing.

"Furthermore, even if there was a successful prosecution of this nature, the sentencing precedents
in the UK don't come anywhere near the magnitude of those we have seen in the US."

[Source: Dominic Rushe, The Guardian, London, UK, 13Oct11]

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